Risk permeates supply chains. The best-laid plans to avoid as many risks as possible often fall on deaf ears in supply chain management, but supply chain executives who take the time to understand the greatest threats can successfully position their companies to overcome such risks. Also, risks can range from working with entities outside of a given company, such as third-party logistics providers (3PLs), to changes in the expected movements of a product, otherwise known as scope change risks. While there are thousands of possible supply chain risks in various supply chains, supply chain execs should keep these risks top of mind.
1. Supply Chain Execs Should Reflect on Demand Risk in All Decisions
Demand risk refers to the continuous fluctuation of supply and demand in supply chains. Consumer spending habits may change rapidly, and the best demand forecasts do fall short on occasion. Therefore, supply chain execs should consider the inherent risk of consumers and suppliers changing their mind in every decision. Failure to do so would result in extreme inaccuracies in inventory management and additional delays throughout shipping processes.
Fortunately, supply chain execs can overcome and successfully mitigate this risk by implementing robust analytics technologies to provide better inventory management and overall supply chain management.
2. Labor Risks Can Upend an Effective Supply Chain
Another risk in today’s supply chains is directly related to workers, explains Supply Chain Dive. Workers’ union, workplace safety, changes in labor regulations and fluctuations with employee turnover and retention can undo a well-versed logistics strategy. As a result, supply chain execs should monitor current employment projections and changes in economic and private sectors that influence the number of workers likely to be looking for a job with a supply chain company.
For example, changes in funding sources and availability for students looking to expand their career options and enter the world of supply chain management may result in a temporary decrease or increase in the number of workers interested in employment with a given supply chain entity. So, executives can mitigate labor risks by understanding the needs and wants of their current workforce, as well as those who may be interested in their industry. In the short-term future. Of course, additional labor risks revolving around workplace safety, like horseplay among employees, can arise as well. In these scenarios, additional training and reinforcement of appropriate human resources (HR) measures and policies can mitigate supply chain risks.
3. Growing Cyber Crimes Present an Added Level of Supply Chain Risks
By the end of 2017, cyber crimes’ costs will exceed $5 billion, and their rate of occurrence is increasing. In supply chains, cyber crimes can range from the theft of personal data to the incorrect or illegal use of proprietary software, technology, information or other tech-based resources. Consequently, supply chain executives must reevaluate their existing cyber security measures and ensure their teams are adhering to the legalities and standards when using tech-based products and systems for supply chain management.
4. Natural Disaster Risks Are Unpredictable
Natural disasters are another risk in supply chain management, but natural disasters are immensely unpredictable. Hurricanes, floods, tornadoes, and even astrological events, such as solar flare ups, can impact the ability of supply chain entities to transport goods. Due to the unpredictability of natural disasters, supply chain executives must have a backup plan in place to circumvent unnecessary delays and costs that occur following a natural disaster. Also, certain geographic areas, such as seismologically active land, is included in natural disaster risk management and mitigation.
5. Political Risks May Topple Strong Supply Chains
Any discussion on supply chain risks is insufficient and incomplete without touching on political risks. Changing politics of domestic and foreign countries will continue to impact supply chains. This also includes supply chains who are not directly transporting goods to and from other countries. If the raw materials for a given product are received from a foreign power, this information may be required by and subject to Customs and Border Protection scrutiny, inspection, and the payment of all necessary taxes, duties, and tariffs. As seen recently with additional sanctions levied against North Korea and other countries, a change in politics may result in the cutoff of critical supply chain functions.
6. Mounting Market Risks Can Damage Brand, Compliance Measures, and Reputation
Markets also play a role in determining supply chain risks. According to SourcingInnovation.com, market risk includes the risk to a company’s brand, reputation and ability to maintain compliance and market exposure to its customers. This risk is amplified through social media, and a single mistake or delay in the transport of goods may result in severe, lasting damage to a company’s brand.
7. Financial Risks Result From Working With Different Banks and Financial Institutions
Financial risks remain another major concern among supply chain executives. Financial institutions and banks providing funding for either raw materials or finished products, as well as the technologies and resources used in the transport of goods, comprise financial risk.
What happens if consumers return products, or what if a recall is an issue? These questions reflect the monetary risk involved on the part of financial institutions providing the capital necessary to ensure a continued flow of products to consumers, as explained by the European Business Review.
8. Scope Change Risks Resulting from Unexpected Problems and Delays
One of the final risks that supply chain executives must consider is changes to supply chains scope and activities. Technically, supply chain scope is defined as the specific activity required to fulfill a given term or obligation within a contract or other service-level agreement. In other words, a freight invoice and contract defines the scope of a given shipment, but natural disasters, resulting in the delay or failure to deliver a product could lead to the addition of other supply chain processes, such as free shipping the shipment, to fulfill the original obligation.
Likewise, receivers of shipments, including consumers, do change their minds. Some consumers may wish to reroute a shipment or have it delivered at an alternative location or time. Although trivial, these minute changes add up to large costs supply chain, and supply chain executives need to implement strong measures to limit changes in order scope.
The Big Picture
The only thing that is certain in successful supply chain management is uncertainty in risk management. No one knows what tomorrow will bring, and small changes in various parts of the supply chain, including labor, political or natural occurrences, can result in costly consequences and delays. However, supply chain executives that take the time to understand their top risk can leverage knowledge to craft successful risk mitigation strategies, including building risk management into all systems and processes.